Stop Faking It: How the Fake Oil Allegations Reinforce the Need for Reform and Vigilance

The recent “fake oil” allegations at Petrotrin has helped propel public discussion on how efficiently the country monitors its oil and gas production. For better or worse, the issue has generated not only salacious stories in the press but actual interest in the existing checks and balances to monitor production. It is clear that the ramifications of lax monitoring can be crippling. In fact, there are billion dollar ramifications if the country does not correctly quantify its energy production, particularly in this current environment of low global oil and gas prices and declining national production.

Oil and gas continue to be our economic white blood cells. Royalties, production bonuses and other taxes that buttress the Government’s spending are all directly linked to how much oil or gas the country produces. And, the recent national budget presentation laid bare the energy sector’s impact on the country’s economic wellbeing, or rather its infirmity. Given these circumstances, this country’s participation in the Extractive Industries Transparency Initiative (EITI) helps provide independent assurance of our current production and revenue.

As part of the EITI reporting process, an Independent Auditor reconciles production (and revenue) from the oil, gas and mining sectors to identify discrepancies and explains the reasons for the difference. The process may seem simple but it is rigorous. For fiscal 2015, the Auditor found differences of 173,077 barrels of oil and 139,405 mcf of gas between what Government and companies declared in production. This variance occurred because, in some instances, different units were used to measure production and due to the use of revised production data by Government and the companies. The TTEITI Steering Committee collaborated with the Ministry of Energy and Energy Industries (MEEI) to implement the auditor’s recommendations and (i) clarified the definition of production, (ii) standardized units of measurement, (iii) disaggregated monthly production by block and (4) stated the sources of company production data ( e.g. Prod 1 field summary reports, impost tax obligation etc.).

Despite the Auditor’s best efforts to identify discrepancies in production and recommend ways to close the gap, the EITI Report does not paint the full picture. Because EITI participation is voluntary, not all extractive companies operating in T&T report to the Auditor. This means that information on some companies’ revenue payments and production are not captured and therefore not available to the public for scrutiny. To help overcome this challenge, the TTEITI Steering Committee developed draft legislation to make EITI participation mandatory by all oil, gas and mining companies operating in T&T. If adopted, all these companies would be obligated to disclose information and report to the Auditor. Whether they are an independent company such as A&V Oil Limited, a publicly traded company such as Trinidad Cement Limited or a large multinational player such as Shell. Mandatory participation in the EITI is valuable but it is not a magic pill. Reform will not happen at the speed of a finger snap. The latest Auditor General report demonstrates the challenges and points to the need for constant vigilance and reform where necessary.

The report clearly states, “As reported in the previous three years, no evidence was seen that oil and gas production data received from companies, and used in the calculation of revenue collectible was verified by the Ministry. The response from the Ministry stated that verification of oil and gas data is undertaken by ensuring the witnessing and testing of calibration of meters at fiscalisation points and witnessing of meters at loading of crude at ports.” The report went on to highlight that there is no collaboration between the MEEI unit responsible for witnessing and testing production data and the unit responsible for collecting and reviewing production data. Furthermore, the report emphasizes that a log to capture queries raised by the MEEI with operators on production is not maintained and there is also a lack of manpower in the measurement unit and a lack of training in measurement for existing staff. These findings certainly gives room for reflection and concern.

It would be reasonable to ask whether, over the course of three Auditor General reports, spanning three years and two different Government regimes, solutions to these issues have been implemented. Fortunately, the MEEI is undergoing a restructuring exercise and is making efforts to add to its human resource capacity. This may provide one answer to the problem. And, while the EITI provides an extra layer of assurance for a public prone to suspicion and acts as a disincentive to corruption, as mentioned before, constant checks, oversight and review of what we produce will still be necessary. The stakes are too high but in every crisis an opportunity presents itself. Hopefully, this current fake oil scandal forces the long term change necessary to remove doubts on how well we monitor our oil and gas production. The country’s economic future depends on it.